Too Much Too Late

The economy is looking up. So what’s up with the big banks.

With the economy gaining some traction one would think that the big banks would be out of the woods. But not yet, according to some. The Wall Street Journal noted that as a result of the Treasury’s tests Citibank and Bank of America each need to raise billions in capital. The banks are disputing these findings, arguing that their capital base is strong. But the market doesn’t seem to agree, with Citi’s and Bank of America’s stock trading off.

While the specific outcome of this debate is up in the air, one thing is certain: change is coming. The old days of using corporate checking accounts to fund mega-investments in wacky securities is over. While a modern financial system needs default swaps and securitization, we’re delivering now even as the economy recovers. Ten years from now our most levered institutions may not even be recognizable.

Douglas R. Tengdin, CFA
Chief Investment Officer
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